Investment Strategy
Navigating Washington's risks: Mar-a-Lago accord and tariffs
U.S. equities are heading lower this week ahead of “Liberation Day” — the day the Trump Administration has said it will unveil its reciprocal tariff strategy.
U.S. consumers are not convinced about the prudence of the White House’s strategy. Consumer confidence fell to the lowest level in four years in March, largely due to concerns about higher prices and the economic outlook amid escalating trade policy uncertainty. Their expectations for the future also darkened. The expectations component of the index fell to the lowest level in 12 years. Equity investors looking for a silver lining should know that spikes in policy uncertainty and troughs in consumer sentiment counterintuitively augur stronger forward returns ahead. Sometimes, it really is darkest before the dawn.
Economic data this week also signaled some reprieve. The Citi U.S. Economic Surprise Index (which measures how economic data is coming in relative to economist expectations) has increased from -16.5 in February to -4.6 now. Indeed, it seems like “hard” measures of economic data are holding up much better than the “soft” data derived from people’s perceptions.
Until we hit first-quarter earnings season (JPMorgan announces in just two weeks), Washington will likely continue to dominate the debate. We are focused on two risks: tariffs and the Mar-a-Lago accord.
Risks emanating from Washington
Trade uncertainty has reached the highest level on record and the White House could be looking for ways to weaken the dollar.
Here is our take on those risks.
What’s at stake with tariffs?
April 2nd, ”Liberation Day,” is this week.
What’s at stake?
The market agrees that tariff rates are heading higher, but there is tremendous uncertainty over just how high they will go. At over 10 percentage points, the range of estimates on where the U.S. effective tariff rate will land is wider than the overall tariff rate itself has ever been in post-war America.
Wide range of tariff estimates
JPM Economics estimates for potential U.S. effective tariff rate, %
Sources: Michael Cembalest, “Eye on the Market,” Tax Foundation, GS Global Investment Research, J.P. Morgan Global Economics. Data as of March 28, 2025. Note: current assumes increases of 20% on China, 25% on Mexico & Canada non-USMCA, 25% on steel & aluminum.
There is a wide range of goals the administration appears to be trying to solve with tougher trade policies: remedying trade deficits, raising government revenue, ensuring reciprocity/fairness for U.S. business interests abroad, safeguarding national security-related supply chains, and securing the border from immigrants and drugs. Crafting a single tariff strategy that encompasses all of these goals in such a short time will be challenging. During the 2018 trade war, it took officials 326 days to investigate and enact tariffs on Chinese imports.
What is the effect on the U.S. economy?
The higher tariff rates go, the larger the hit to growth is likely to be. The estimated impact on economic growth from the range of tariffs under consideration is between 0 to -0.7%. Notably, however, the potential hit to U.S. GDP could be larger than for the rest of the world, a stark contrast to the estimated impact of tighter trade policy coming into the year. Then, most forecasts were for higher tariff rates, but primarily on China and a narrow set of national-security-related sectors. As the U.S. instigates trade wars with the rest of the world, they lose the advantage of size.
Negative growth impact varies by tariff type
Growth impact by tariff type, %
Source: J.P. Morgan Global Economics. Data as of March 7, 2025.
This week President Trump offered a teaser to April 2nd by signing a proclamation to implement a 25% tariff on all auto imports, set to come into effect on April 3rd and expand to auto parts by May 3rd. The 25% tariff rate on vehicles covered by the US-Mexico-Canada trade agreement will only apply to the value of non-U.S. components.
There is little consensus over what the U.S. tariff regime may look like, raising the likelihood of market volatility and downside risks to U.S. and global growth. However, any sort of clarity on tariff policy may allow the market to move on to other risks.
A key observation for investors is that gold has outperformed the USD and S&P 500 by >6% across the 11 days dominated by tariff announcements this year. We continue to think gold has a valuable role to play in portfolios, alongside diversification across asset classes and geographies.
Cumulative cross-asset pricing on tariff event days
Change, %
Sources: PIIE, Bloomberg Finance L.P. Data as of March 27, 2025. Note: indices used include XAU Curncy; VG1 Index; LBUSTRUU Index; MXWOU Index; JHYRHYI Index; SPY US EQUITY; DXY Index. Tariff reductions show inverse performance. Events from PIIE post inauguration.
What is the Mar-a-Lago accord and could it happen?
A paper by Stephen Miran, Chair of the White House Council of Economic Advisers, has raised some radical ideas as to how the administration could weaken the dollar.
The U.S. dollar is 6% above its 10-year average and 16% above its 20-year average valuation when measured against a basket of other major world currencies. A stronger dollar tends to lead to more imports (international goods are relatively cheaper for U.S. consumers) and less exports (U.S. goods are relatively more expensive for international buyers), which directly opposes the administrations goals of balancing trade and revitalizing domestic manufacturing. The administration has a stated goal to increase manufacturing domestically.
Miran’s paper focuses on two ideas:
- A “Mar-a-Lago Accord” where countries/central bank reserve managers agree to swap their holdings of short-term U.S. Treasury securities for century (100 year) bonds. If countries don’t agree to this, they would be subject to tariffs and have U.S. security guarantees removed.
- The U.S. could charge a “user fee” on reserve assets held by other countries – for example, a fee of 1% of coupons, which might increase to 2% if USD devaluation is insufficient. The paper also suggests differentiating between friends and foes: “Presumably, the Administration would want to withhold remittances to geopolitical adversaries like China more severely than to allies, or to countries that engage in currency manipulation more severely than to those that do not.”
The persistent overvaluation of the USD poses a challenge, but the “Mar-a-Lago Accord” and user fees on reserve assets carry substantial risks. Most notably, these measures could undermine the dollar’s reserve status and lead to much higher long-term interest rates, which are also contrary to the administration’s goals. Further, it seems unlikely that other economic policymakers would agree readily to a scheme to weaken the dollar like they did in the 1980s. Our view is that the accord is very unlikely.
We’ve highlighted several risks that are growing out of Washington. Investors should think about how they can position portfolios to help protect from those risks. We believe investors should stick to their strategic asset allocations, using equity exposure for long-term capital appreciation, and fixed income to hedge from growth scares. Additionally, we think tactically adding resilience (defined as income, diversification, and inflation protection) to portfolios through gold and real assets like infrastructure can help insulate portfolios from existing risks. Limiting the severity of drawdowns is critical to long-term investment success.
For questions as to how to best position your portfolio, reach out to your J.P. Morgan team.
RISK CONSIDERATIONS
All market and economic data as of March 2025 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.
We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.
- Past performance is not indicative of future results. You may not invest directly in an index.
- The prices and rates of return are indicative, as they may vary over time based on market conditions.
- Additional risk considerations exist for all strategies.
- The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
- Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.
Index Definitions:
VG1 Index: The Euro Stoxx 50 Future. The EURO STOXX 50 Index, Europe's leading blue-chip index for the Eurozone, provides a blue-chip representation of supersector leaders in the region. The index covers 50 stocks from 11 Eurozone countries.
LBUSTRUU Index: The Bloomberg USAgg Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
MXWOU Index: The MSCI World ex USA Index is a free-float weighted equity index. It was developed with a base value of 100 as of December 31, 1969.
JHYRHYI Index: The J.P. Morgan High Yield Bond Index is a comprehensive, broad-based composite benchmark. It tracks U.S. Dollar, Euro, and Pound Sterling-denominated global corporate debt issuances across both Developed Markets (DM) and Emerging Markets (EM) debt segments. The benchmark index covers High-Yield (HY) debt issuances across Asia, Europe, Latin America, North America, and the Middle East & Africa regions. Daily historical returns and statistics have been available since December 31, 2012.
SPY US EQUITY: SPDR S&P 500 ETF Trust is an exchange-traded fund incorporated in the USA. The ETF tracks the S&P 500 Index. The Trust consists of a portfolio representing all 500 stocks in the S&P 500 Index. It holds predominantly large-cap U.S. stocks. This ETF is structured as a Unit Investment Trust and pays dividends on a quarterly basis. The holdings are weighted by market capitalization.
DXY Index: The U.S. Dollar Index (USDX) indicates the general int'l value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. The ICE US computes this by using the rates supplied by some 500 banks.
Important Information
Political uncertainty has reached rare heights, with tariffs and the value of the dollar the primary risks.
Harry Downie
Global Investment Strategist
Samuel Zief
Global Macro Strategist & Head of Global FX Strategy
Published Mar 31, 2025
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